Glimmers of light in the fog

Tony Reddin

It is the time of year when we reflect on the 12 months just gone and thoughts turn to what the future holds. In the commercial property sector it's hard to think of a time when strategic thinking was more important. The sector is more complex and demanding than ever, and all the players have had to realign their expectations to meet the tough realities of today's market.

Uncertainty still lingers over the pace of recovery. The deepening eurozone crisis of the past few weeks and the lack of growth in the UK economy have highlighted the ongoing lack of liquidity and increasing costs of capital in the property lending market which will not improve significantly in the short term. However, property can still be a worthwhile investment as long as that investment is carefully considered. Market volatility can throw up some interesting opportunities.

Grant Thornton recently sponsored the Financial Times Commercial Property conference 2011 which concluded that growth will continue to be slow, and the fiscal policies required to get through this difficult time will be complex, however, the simple economics of supply and demand prove that if people want and need good quality and good value commercial property, the opportunities will continue to present themselves, albeit in a more cautious and commercially savvy guise.

The predictions arising from the concluding discussions at the conference included the fact that property is still attractive in comparison to other asset classes as it is a good diversifier and remains a defensive investment as long as you're picky about what you buy. If you are lucky enough to be investing prime central London property then your returns will be attractive but to a large extent this is a closed shop with serious competition from overseas investors increasing the polarisation between London and the regions.

The other key issue on the horizon is the five-year asset loans that are coming back on the market which have matured and require refinance. How the banks address this issue may well dictate the pace of recovery.

It is important to remember that the financial crisis has affected every sector of business. In commercial property there have been some signs of uplift, however gradual. It is this sluggish, and some might say, sideways market environment that forces innovation, excellence and creativity. Low volumes of property and a tougher banking sector mean that deals are only available for those who have the trust of their counterparts and experience of delivery, but those who are in a position to capitalise on this will prosper. As we embark on yet another year of uncertainty, the market conditions, though precarious, still offer glimmers of light through the fog. Reaching them will simply require careful navigation, a good deal of patience and another 12 months of hard graft.

Best wishes and good luck for 2012.

For a link to the report please click here.

Tony Reddin is senior manager at Grant Thornton UK LLP in Manchester. He joined Grant Thornton in 1997 after studying law at Liverpool University. Reddin is a member of Grant Thornton's property and construction group and stamp taxes group. He has over 13 years' experience working in tax and has worked closely with large private limited companies and owner-managed businesses. He has gained extensive experience in the structuring of property transactions, capital allowance and land remediation claims and stamp duty land tax mitigation.